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TMI Blog2023 (2) TMI 572X X X X Extracts X X X X X X X X Extracts X X X X ..... AO to allow deduction as claimed by the assessee. Interest income earned from deposits made with other Co-operative Banks including District Central Cooperative Bank - In this view of the matter and consistent with the view taken by the co-ordinate bench in assessee s own case for assessment year 2017-18 [ 2022 (7) TMI 1379 - ITAT CHENNAI] we set aside the issue of interest income earned from deposits made with other Co-operative Banks u/s. 80P(2)(d) of the Act, to the file of the AO and direct the AO to re-examine the claim of the assessee in light of directions given by the Tribunal in the order for the assessment year 2017-18 and decide the issue for the impugned assessment year. Appeal filed by the assessee is allowed for statistical purposes. - ITA No.: 860/Chny/2022 - - - Dated:- 8-2-2023 - Shri V. Durga Rao, Hon ble Judicial Member And Shri G. Manjunatha, Hon ble Accountant Member For the Appellant : Ms. G. Vardini Karthik, Advocate For the Respondent : Mr. S. Senthil Kumaran, CIT ORDER PER G. MANJUNATHA, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order passed by the Commissioner of Income Tax (Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit cooperative societies are entitled to claim deduction u/s.80P of the Act in respect of interest income earned from deposits kept in other co-operative banks. 3. The brief facts of the case, are that the appellant is a Primary Agricultural Co-operative Credit Society, registered under the Tamil Nadu Co-operative Societies Act, 1983 and engaged in the business of providing agricultural loans to its members (class A class B). The assessee has filed its return of income for the assessment year 2018-19, declaring nil total income, after claiming deduction u/s. 80P of the Income-tax Act, 1961 (hereinafter referred to as the Act ). The assessment has been completed u/s. 143(3) of the Act, on 09.02.2021 and determined total income of Rs. 72,58,525/-, where the Assessing Officer has disallowed deduction claimed u/s. 80P of the Act, amounting to Rs. 72,58,525/-, on the ground that the assessee is not entitled for deduction towards interest income earned from loans given to associate members and also interest income earned from deposits with District Central Co-operative Bank. The relevant findings of the AO are as under: 4. The assessee in its submission mentioned that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as part of the grounds of appeal. 6.2 The appellant is a Primary Agricultural Cooperative Society registered under the Tamil Nadu Cooperative Societies Act, 1983 and provides providing agricultural loans to its members (Class A and Class B). Further, it is seen that both types of members are eligible to avail loan from the society and pay interest on the same to the society and all the members have to renew their membership once in three years. 6.3 During the year under consideration, it is noticed that the appellant has claimed deduction u/s 80(P)(2)(d) of the IT. Act. It is also seen that the appellant is maintaining accounts with cooperative Bank (i.e. EDCC Bank Ltd) and shown deposits in EDCC Bank, therefore, it is clear that the appellant has made investment in Co. Operative Bank not in Cooperative Societies. 6.4 During the course of assessment proceedings, the Assessing Officer relied on the judgement rendered by Hon'ble Supreme Court in the case of M/s. The Totgars' Cooperative Sale Society Limited versus Income Tax Officer, Karnataka [2010] 188 Taxman 282 (SC) in Civil Appeal No. 1622 of 2010 dated 08/02/2010. In Pages 9 and 10 of the said judgement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses and which have been only invested in specified securities as investment . Further, as stated above, assessee(s) markets the agricultural produce of its members. It retains the sale proceeds in many cases. It is this retained amount which was payable to its members, from whom produce was bought, which was invested in short-term deposits/securities. Such an amount, which was retained by the assessee-Society, was a liability and it was shown in the balance-sheet on the liability-side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or in Section 80P(2)(a)(iii) of the Act. Therefore, looking to the facts and circumstances of this case, we are of the view that the Assessing Officer was right in taxing the interest income, indicated above, under Section 56 of the Act. 6.5 In the case of Citizens Co-operative Society Limited, Hyderabad vs Assistant Commissioner of Income Tax, Circle-9(1), Hyderabad in Civil Appeal No. 10245 of 2017 dated 08.08.2017 para 25 and 26 of the said judgement, it is reproduced hereunder: .. the assessee is catering to two distinct categories ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther paragraphs]. In the present case both the parties to the transaction are the contributors towards surplus, however, there are no participators in the surpluses. There is no common consent of whatsoever for participators as their identity is not established. Hence, the assessee fails to satisfy the test of mutuality at the time of making the payments the number in referred as members may not be the member of the society as such the AOP body by the society is not covered by concept of mutuality at all. 7. It is pertinent to note that the assessee is running shops under the public distribution scheme, where in it is not possible to distinguish the member and non members, as the benefits are enjoyed by the general public. The assessee is also running money transfer facilities to the general public, functioning as a commission agent for insurance companies, common service centre for downloading government related documents, certificates, Xerox facilities and funding to the self help group who are not necessarily the members of the society. Hence, the principal of mutuality is defeated in these contexts also. 6.6 The AO has also relied upon the following case laws: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee is not acceptable. 5. In view of the above facts and relying on the provisions of section 80P(2)(0) of the Act, the interest income earned by the assessee amounting to Rs. 72,58,525/ is hereby held to be not eligible for deduction u/s.80P of the Act. The Income of the assessee is modified by disallowing the claim of deduction u/s 80P(2)(d) of the IT Act. Penalty proceedings u/s. 2704 is initiated for under reporting of income as discussed above. 6.10 I have perused the matter and a perusal of various provisions of Section 80P indicates that the provisions are meant for deductions in respect of income of the co-operative societies. As clearly stated by the AO in his assessment order [p ra 4 5. above], the assessee society Rs 72,58,525/- on funds has earned interest amounting to which are earned out of its cooperative activity. Hence the deduction under section 80P(2) would not apply to such interest. 6.11 In view of the above facts and circumstances, such interest income falls in the category of Income from other sources' which has to be taxed u/s 56 of the lT Act 1961, for which also no deduction under appellant society, the AO has Chapter VIA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As regards deduction towards interest income earned from loans given to associate members u/s. 80P(2)(a)(i) of the Act, we find that the Tribunal had considered an identical issue in assessee s own case for assessment year 2017-18 in ITA No. 586/Chny/2021, where under identical set of facts, the Tribunal by following the decision of Hon ble Supreme Court in the case of Mavilayi Service Co-operative Bank Limited vs. CIT, Calicut (Supra), held that the assessee is entitled for deduction towards interest income earned from loans given to the associate members u/s. 80P(2)(a)(i) of the Act. The relevant findings of the Tribunal are as under: 5. The Assessing Officer as well as the CIT(A) relied on the decision of the Hon ble Supreme Court in the case of Citizen Cooperative Society Limited, Hyderabad Vs. Assistant Commissioner of Income Tax in Civil Appeal No.10245 of 2017, dated 08.08.2017 / [2017] 397 ITR 1 (SC) and disallowed the claim of deduction of the Assessee u/s.80P(2)(a)(i) of the Act. She stated that now the issue is covered by the decision of the Hon ble Madras High Court in the case of The Principal Commissioner of Income Tax Vs. M/s.S-1308, Ammapet Primary Agricultural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat regard, the expression members in section 80P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the Co-operative Society claiming exemption has been formed. It is therefore, necessary to construe the expression members in Section 80-P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Co-operative Societies Act. The said provision reads as under: 2.(n). Member means a person who joined in the application for registration of a Society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being force but a reference to members anywhere in this Act in connection with the possession or exercise of any right or power or the existence or discharge of any liability or duty shall not include reference to any class of members who by reason of the provisions of this Act do not possess such right or power have no such liability or duty; Considering the definition of member under the Kerala Act, loans given to such nominal members would qualify for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal are as under: 9.1 It is to be seen as to whether the interest earned by the Assessee is from the Co-operative Bank which is governed and registered under the Tamilnadu Co-operative Societies Act, 1983 or as to whether it is governed by the Reserve Bank of India holding banking license under the Banking Regulations Act, 1949. This fact is not coming out of the order of the Assessing Officer or of the Commissioner of Income Tax. Hence, this issue is remanded back to the file of the Assessing Officer who will verify as to whether the Assessee has earned interest from the Co-operative Banks governed by the Reserve Bank of India holding banking license under the Banking Regulations Act, 1949 or as to whether it is governed by the Tamilnadu Co-operative Societies Act, 1983, the Assessing Officer will verify the facts and will decide accordingly. Thus, the appeal of the Assessee is partly allowed as indicated above. 10. In this view of the matter and consistent with the view taken by the co-ordinate bench in assessee s own case for assessment year 2017-18, we set aside the issue of interest income earned from deposits made with other Co-operative Banks u/s. 80P(2)(d) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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